The first half of 2004 brought a welcome surge of leasing demand to the Manhattan office market, according to a new report by commercial real estate brokerage Cushman & Wakefield. New York City posted 14.3 million sq. ft. of new leasing activity through the first half of 2004, compared to only 11.4 million sq. ft. in the same period last year.

The most active industry in the leasing market continued to be law firms, which year-to-date have leased more than 1.6 million sq. ft. of office space in Manhattan, representing nearly 20% of the market.

Financial services firms were the second most active drivers of leasing demand in Manhattan, leasing more than 1.2 million sq. ft. and leading all industries in leasing in Midtown. As a result, overall Manhattan office vacancy declined to 11.8% from 12.5% at year-end 2003. Still, two submarkets — Downtown and Midtown South — posted declines in asking rental rates between the end of the First and Second Quarter 2004.

Ken Krasnow, executive managing director and head of Cushman & Wakefield’s New York office, credited the news in part to several large lease signings and the markets "voracious appetite for sublease space."

A total of 18 office leases in excess of 100,000 sq. ft. were completed — six more than were completed in the first half of 2003 and three times as many as were completed in the first half of 2002. "Last year we were talking about a perceived bottom in the market and a more stable environment for commercial real estate in New York," says Krasnow.

Krasnow adds that sublease transactions remained attractive to the largest tenants. Three of the top five deals in the market through midyear were sublease deals, totaling about 1.5 million sq. ft.